LBBW's gennussschein facing principal hit, says UniCredit

In the wake of LBBW’s announcement that it is expecting significant losses, UniCredit analysts point out that the bank’s gennussschein instruments are likely to receive a haircut.

The gennussschein has long been a part of German banks’ capital structures. As upper tier-two debt, it participates in losses as the bank realises them. In the case of LBBW, analysts expect a haircut of around 7% for each €1 billion in net loss at the single entity-level.

LBBW’s losses are due to restructuring expenses, higher loan-loss provisions, and from the real estate business. It announced that it is unlikely to make coupon payments for its subordinated debt in the current financial year as a result.